Lecture Notes for Chapter 5
The Five Generic Competitive Strategies
Chapter Five describes the ﬁve basic competitive strategy options – which of the ﬁve to employ is a company’s ﬁrst and foremost choice in crafting overall strategy and beginning its quest for competitive advantage.
I. Introduction 1. There are several basic approaches to competing successfully and gaining a competitive advantage, but they all involve giving buyers what they perceive as superior value compared to the offerings of rival sellers. 2. This chapter describes the ﬁve basic competitive strategy option for building competitive advantage and delivering superior value to customers – which of the ﬁve to employ is a company’s ﬁrst and foremost choice in crafting an overall strategy and beginning its quest for competitive advantage. II. Competitive Strategies and Industry Positioning. 1. By competitive strategy we mean the speciﬁcs of management’s game plan for competing successfully –its offensive and defensive moves to counter the maneuvers of rivals, its responses to whatever market conditions prevail at the moment, and its approach to securing a competitive advantage vis-à-vis rivals. 2. A company achieves competitive advantage whenever it has some unique way of delivering way of delivering superior value to customers. Core Concept A competitive strategy concerns the speciﬁcs of management’s game plan for competing successfully and achieving a competitive advantage over rivals.
3. There are countless variations in the competitive strategies that companies employ, mainly because each company’s strategic approach entails custom-designed actions to ﬁt its own circumstances and industry environment. 4. The biggest and most important differences among competitive strategies boil down to: a. whether a company’s market target is broad or narrow or 369
Instructor’s Manual for Essentials of Strategic Management
b. whether the company is pursuing a competitive advantage linked to low costs or product differentiation. 5. Five distinct competitive strategy approaches stand out: a. b. A low-cost provider strategy: striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by under pricing rivals. A broad differentiation strategy: seeking to differentiate the company’s product or service from rivals’ in ways that will appeal to a broad spectrum of buyers
c. A focused low-cost strategy: concentrating on a narrow buyer segment and outcompeting rivals by serving niche members at a lower cost than rivals d. A focused differentiation strategy: concentrating on a narrow buyer segment and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals products e. A best-cost provider strategy: giving customers more value for the money by satisfying buyers’ expectations on key qualities/features/performance/service attributes while beating their price expectations. The aim is to have the lowest (best) costs and prices compared to rivals offering products with comparable differentiating attributes. 6. Figure 5.1, The Five Generic Competitive Strategies — Each Stakes Out a Different Position in the Marketplace III. Low-Cost Provider Strategies 1. A company achieves low-cost leadership when it becomes the industry’s lowest-cost provider rather than just being one of perhaps several competitors with comparatively low costs. 2. In striving for a cost advantage over rivals, managers must take care to include features that buyers consider essential. Core Concept A low-cost leader’s basis for competitive advantage is lower overall costs than competitors. Successful low-cost leaders are exceptionally good at ﬁnding ways to drive costs out of their businesses.
3. A company has two options for translating a low-cost advantage over rivals into attractive proﬁt...